Coronavirus (COVID-19) epidemic has caused disruptions in corporate cash flow. Hence, Indian lenders are seeking relief from the Reserve Bank of India for the borrowers and are not classifying the affected areas as bad loans in the March quarter.
State Bank of India Chairman Rajneesh Kumar said that banks are reviewing aviation, tourism, small transport operators which have been hit by Covid-19. He said, “This will have some impact on the economy.”
According to sources, banks are ready to give affordable loans to small and medium-sized companies which will face more difficulties in the current quarter due to lack of supplies and customers. The SBI chairman said, companies are telling us that they will be delayed in repaying the loan and for this we have sought approval from RBI. Since this is an amazing phenomenon, the matter of companies is legitimate.
Banks are also upset that the growth rate of loans in the industrial sector has come down to 1.6 percent as growth in medium and large industries has come down to single digit at 2.5 percent and 1.8 percent respectively.
In addition, some large sectors, which account for about 70 percent of the entire industrial loan, have negatively increased loan growth. It includes sectors such as infrastructure, petroleum, chemicals, metals and food processing. Not only this, the bad loans of these big industries are high in the third quarter, which will further affect the credit growth.
Those who command corporate finance say that due to this epidemic, there can be a lot of problems in the March quarter. Prabhal Banerjee, finance director of Bajaj Group, said, ‘This situation is very bad. There should be a moratorium on principal repayment for two years and on interest for corporates for six months. The net present value of the loan should also be protected by adjusting the rate of interest.
Rating agency CRISIL said in a warning, “There should be a moratorium on high risk service sectors including airlines, airports, hotels, malls, multiplexes, restaurants and retailers.” It was further stated that some affected companies may cut costs. But this is also not enough because their credit profiles may get spoiled due to ineffective overheads.
Covid-19 may not have a direct impact on sectors such as steel, gems and gems, construction and engineering and textiles, but demand and recovery will be affected by the current global and domestic economic slowdown. However, the consequences of its impact on the economy will be revealed only later.